House Panel: E-Rate Program Mismanaged, Wasteful

Lax oversight by federal regulators has helped waste millions of dollars in a government program that aims to connect schools and libraries to the Internet, according to a congressional investigation.

The E-Rate program (search), which is overseen by the Federal Communications Commission (search), provides discounted Internet access and connection equipment to help expand Internet availability, especially in rural and low-income areas.

But the $2.25 billion program "is extremely vulnerable to waste, fraud, and abuse, is poorly managed by the FCC, and completely lacks tangible measures of either effectiveness or impact," said a report released Tuesday by the oversight subcommittee of the House Energy and Commerce Committee (search).

The agency crafted an ambitious and well-intentioned program, but it failed to conduct a comprehensive assessment of the E-Rate program, the report said. It also faulted the FCC for having no performance goals and measures to gauge the impact and management of the funds.

The commission is working on developing performance standards.

"Chairman Martin was aware of concerns with the program and one of his first initiatives was to open a proceeding considering fundamental, structural reform to try to address those issues," said FCC spokesman Mark Wigfield.

Kevin Martin (search) was elevated from commissioner to FCC chairman in March.

"It is clear to me," said subcommittee chairman Rep. Ed Whitfield (search), R-Ky., "that many E-Rate program weaknesses must be addressed legislatively to avoid waste and misuse."

Ranking Democrat Rep. Bart Stupak (search) of Michigan said, "We simply cannot allow self-interested vultures and incompetent administrators to undermine this essential program."

The subcommittee's two-year investigation cited problems with the E-Rate program in Puerto Rico, San Francisco, Chicago and Atlanta.

For example, the report said more than $100 million was provided to Puerto Rico for an E-Rate funded network that was implemented only in a few schools, and almost no students had access to it. In Chicago, more than $8 million in unused connection equipment sat in distribution warehouses.

The report made a number of recommendations including the development of performance goals and more rigorous oversight and audits by the FCC and the Universal Service Administrative Company (search), which handles day-to-day management of E-Rate.

Other audits and investigations have uncovered abuses nationwide, including wasted equipment, improper purchases and insufficient payments.

The E-Rate program is financed by charges paid by telephone companies and typically passed along to consumers in the form of a universal service charge on consumers' phone bills.

The FCC plans to use about $132 million from the E-Rate program to fund a relief plan for Hurricane Katrina-devastated schools and libraries on the Gulf Coast to reconnect to the Internet. Some lawmakers have expressed concern the plan could siphon E-Rate money from other states.